CATCH-22
There’s an apparent catch-22 involved in implementing Enterprise Resource Planning successfully. It goes like this:
1. It’s a lot of work.
Implementing ERP as a new set of decision-making processes is a major undertaking involving many people throughout the company, including general management. In essence, the entire company must learn how to deal with demand and supply issues in a new way. The speed of information flow with enterprise software combined with ERP’s new approach to all of the planning and execution systems represents a major shift in company thinking—and that means a lot of work.
2. It’s a do-it-yourself project.
Successful implementations are done internally. In other words, vir- tually all of the work involved must be done by the company’s own people. The responsibility can’t be turned over to outsiders, such as consultants or software suppliers. That’s been tried repeatedly, and
hasn’t worked well at all. Consultants can have a real role in provid- ing expertise but only company people know the company well enough and have the authority to change how things are done.
When implementation responsibility is de-coupled from opera- tional responsibility, who can be legitimately accountable for results? If results aren’t forthcoming, the implementers can claim the users aren’t operating it properly, while the users can say that it wasn’t im- plemented correctly. Almost without exception, the companies who have become Class A or B and have achieved the greatest bottom- line benefits are the ones where the users implemented ERP them- selves.
Therefore, a key principle of implementation is: IMPLEMENTERS = USERS
The people who implement the various tools within Enterprise Re- source Planning need to be the same folks who will operate those tools after they’re implemented.
3. It’s not priority number one.
The problem is, the people who need to do it are already very busy with their first priority: getting customer orders, making shipments, meeting payroll, keeping the equipment operating, running the busi- ness. All other activities must be subordinate. Implementing ERP can’t be priority number one, but it does need to be pegged as a high priority within the company, preferably the number two priority, right below running the business.
Well, who runs the business? People do. People starting with gen-
eral managers1as well as department leaders in sales, manufacturing,
finance, and marketing. Virtually everyone in the company has a stake, including those who plan, produce, and sell the product at every level in the business.
24 ERP: MIH
1Throughout this book, we’ll use the term General Manager to refer to the sen- ior executive in charge of the business unit. In this context, general manager can be synonymous with President, Chief Executive Officer, or Managing Director. It is the person to whom all the major disciplines report: Sales & Marketing, Operations, Product Development, Finance.
This catch-22 is one of the reasons why many companies that im- plement ERP never get beyond Class C. Other reasons include:
It’s people-intensive.
ERP is commonly misperceived as a computer system. Not so. It’s a
peoplesystem made possible by the computer software and hard-
ware.
It requires top management leadership and participation.
If the goal is truly to run the business better, then the general man- ager and staff must be deeply involved because they and they alone have the real leverage over how the business is to be managed. Changes made at a lower level in the organization won’t matter much if it’s business as usual at the top. Bob Stahl says: “I find that prior- ity comes from a leadership who understands that ERP is tied to their future success. It becomes part of their defined ‘strategic im- peratives.’”
It involves virtually every department within the company.
It’s not enough for just the manufacturing or logistics or materials departments to be on board. Virtually all departments in the com- pany must be deeply involved in implementing ERP; those men- tioned, plus marketing, engineering, sales, finance, and human resources.
It requires people to do their jobs differently.
Most companies implementing ERP must undergo massive behav- ior change to be successful. ERP requires a new set of values. Many things must be done differently, and this kind of transformation is never easy to achieve.
Many people in general management will assume that a massive software change such as an ES is sufficient to achieve major results. In fact, this system simply moves more information faster and deeper in the company. If the actual work processes don’t change, then bad information moves more quickly and with dangerous mo- The Implementation Challenge 25
mentum across the company. ERP provides the work and people process to make sense out of this rapid flow of data.
Experienced users say implementing ERP is more difficult than building a new plant, introducing a new product, or entering a whole new market. Breaking through the catch-22, overcoming the people problems, making it happen—these are the challenges.
That’s the bad news.
The good news is there’s a way to meet these challenges. There’s no mystery involved. Implementing ERP successfully can be almost a sure thing—if it’s done right. Yes, it is a lot of work. However, ERP has never failed to work, not once, when correctly implemented. It will work and users will realize enormous benefits.
Doing it right involves two major elements:
1. An aggressive implementation schedule, focused on achieving maximum benefits in minimum time.
2. The Proven Path.A set of steps that, if followed, will ensure a
successful implementation.
ANAGGRESSIVEIMPLEMENTATIONSCHEDULE
The question arises: “How long should it take to implement all of the functions of Enterprise Resource Planning throughout the entire company, from when we start until we’re fully implemented?” First of all, it’s difficult to implement all of ERP, company wide, in less than a year. Some companies have achieved Class A status in less than 12 months, but not many. Why? Simply because so many things need to be done: massive education, data integrity, changing the way the busi- ness is run. And, all the while, it’s not the number one priority.
On the other hand, for an average-sized or smaller company (divi- sion, business unit), if it’s taking longer than two years, it’s probably not being done correctly. As a matter of fact, if a given business unit takes longer than two years to implement, the odds for achieving su- perior results decrease sharply. It becomes more and more difficult to maintain the intensity, the enthusiasm, the drive and dedication
necessary, and thus it’s harder to keep ERP pegged as a very high pri- ority. The world is simply changing too fast.
Therefore, plan on the full implementation of Enterprise Resource Planning for a given business unit to take longer than one year, but less than two. For purposes of simplicity and consistency, let’s rou- tinely refer to an 18-month implementation. Now 18 months is a fairly long time. Therefore, during that period, early successes are important, and thus we recommend that they be identified and ag- gressively pursued. The most important early win is typically Sales & Operations Planning (to be covered in Chapter 8), and another is in- ventory record accuracy (Chapter 10).
On the other hand, some people feel an 18-month time frame is too aggressive or ambitious. It’s not. It’s a very practical matter, and also necessary. Here’s why:
Intensity and enthusiasm.
Because ERP will be implemented by the people running the busi-
ness, their first priority mustbe running the business, which is a full-
time job in itself. Now their responsibilities for implementing ERP will require more work and more hours above and beyond running the business.
With a long, extended project, these people will inevitably become discouraged. The payoff is too far in the future. There’s no light at the end of the tunnel.
However, with an aggressive schedule, these people can see progress being made early on. They can expect improvement within a relatively short time. In our experience, the operating people— sales and marketing people, foremen, buyers, engineers, planners, etc.—respond favorably to tangible gains.
Priority.
It’s quite unlikely ERP can hold the necessary high priority over three or four years. (Companies are like people; their attention spans are limited.) As the project’s priority drops, so do the odds for suc- cess. The best approach is to establish ERP as a very high priority; implement it quickly and successfully. And then capitalize on it. Build on it. Use it to help run the business better and better.
Unplanned change.
Unforeseen changes come in two forms: changes in people and changes in operating environment. Each type represents a threat to the ERP project.
Regarding people changes, take the case of a division whose gen- eral manager is ERP-knowledgeable, enthusiastic, and leading the implementation effort. Suppose this person is suddenly promoted to the corporate office. The new general manager is an unknown entity. That person’s reaction to ERP will have a major impact on the pro- ject’s chances for success. He or she may not be supportive of ERP (usually because of a lack of understanding), and the entire imple- mentation effort will be at risk.
Environmental change includes factors such as a sharp increase in business (“We’re too busy to work on ERP”), a sharp decrease in business (“We can’t afford ERP”), competitive pressures, new gov- ernmental regulations, etc.
While such changes can certainly occur during a short project, they’re much more likely to occur over a long, stretched-out time period.
Schedule slippage.
In a major project like implementing ERP, it’s easy for schedules to slip. If the enterprise software is being installed at the same time, soft- ware installation deadlines might suggest pushing back the planning portion of ERP. Throughout this book, we’ll discuss ways to mini- mize slippage. For now, let us just point out an interesting phenom- enon: In many cases, tight, aggressive schedules are actually less likely to slip than loose, casual, non-aggressive schedules.
Benefits.
Taking longer than necessary to implement defers realizing the bene- fits. The lost-opportunity cost of only a one-month delay can, for many companies, exceed $100,000. A one-year delay could easily range into the millions. An aggressive implementation schedule, there- fore, is very desirable. But . . . is it practical? Yes, almost always. To un- derstand how, we need to understand the concept of the three knobs.
28 ERP: MIH
TEAM
FLY
The Three Knobs
In project management, there are three primary variables: the
amount of workto be done; the amount of timeavailable (calendar
time, not person-years); and the amount of resourcesavailable to ac-
complish the work. Think of these as three knobs, which can be ad- justed (as shown in Figure 2-1).
It’s possible to hold any two of these knobs constant by varying the third. For example, let’s assume the following set of conditions: 1. The workload is considered to be a constant, a given. There is a certain amount of work that simply has to be done to imple- ment ERP.
2. The time can also be considered a constant, and, in this ex- ample, let’s say it’s fixed at about 18 months.
3. The variable then becomes the resource knob. By adjusting it, by providing resources at the appropriate level, the company can accomplish the necessary amount of work in the defined time. (Developing a proper cost-benefit analysis can put the resource issue into clearer focus, and we’ll return to that issue in Chapter 5.)
But, what if a company can’t increase the resource knob? Some- times, it’s simply not possible. Maybe there’s not enough money, or the organization is stretched so thin already that consuming large blocks of employee time on an implementation just isn’t in the cards. Well, there’s good news. Within the Proven Path, provisions are made for:
The Implementation Challenge 29
WORK TIME RESOURCES
Figure 2-1
• Company-wide implementation: total company project; all ERP functions implemented; time frame one to two years. • Quick-Slice ERP implementation: confined to one or several
Pareto2high-impact product lines; most, but not all, ERP func-
tions implemented; time frame three to five months.
With Quick-Slice ERP, the resources are considered a constant, because they are limited. Further, the time is considered fixed and is a very short, aggressive period. Thus the variable becomes the amount of work to be done. The principle of urgency applies here also; since only a portion of the products/company will be cutting over to ERP, it should be done quickly. This is because the company will need to move aggressively to the next step, which may be to do another Quick-Slice implementation on the next product family or perhaps to convert to a company-wide implementation.
Resource constraints are only one reason why companies elect to begin implementation on a Quick-Slice basis. For other reasons, and for a detailed description of the Quick-Slice implementation process via the Proven Path, see Chapters 13 and 14. For now, let’s examine the Proven Path methodology, realizing that either implementation approach—company-wide or Quick Slice—applies.
THEPROVENPATH
Today there is a tested, proven way to implement Enterprise Re- source Planning. Thirty or so years ago, no one could say that. Back then, people said:
It should work.
We really believe it’ll work.
It stands a good chance of working. It certainly ought to work.
30 ERP: MIH
2Pareto’s law refers to the principle of the “vital few—trivial many.” For example, in many companies, 30 to 60 percent of their sales comes from 5 to 10 percent of their products. Pareto’s law is also the basis for ABC inventory analysis, and is used extensively within Total Quality Management and Lean Manufacturing/Just-In- Time.
No more. There’s no longer any mystery about how to implement ERP. There is a well-defined set of steps, which guarantees a highly successful implementation in a short time frame, if followed faith-
fully and with dedication.3These steps are called the Proven Path.
If you do it right, it will work. Period.And you can take that to the
bank.
How can we be so certain? How did this become such a sure thing? The main reason centers on some executives and managers in certain North American manufacturing companies. They had several things in common: a dissatisfaction with the status quo, a belief that better tools to manage their business could be developed, and an ample supply of courage. These early implementers led the way.
Naturally, they had some help. Consultants and educators were key to developing theory and practice. Computer companies, in the early days, developed generalized software packages for material re- quirements planning, capacity requirements planning, and plant floor control. But, fundamentally, the users did it themselves.
Over the past 35 years, thousands of companies have implemented MRP/MRPII/ERP. Many have implemented very successfully (Class A or B); even more companies less so (Class C or D). By ob- serving a great variety of these implementation attempts and their results, it’s become very clear what works and what doesn’t. The methods that have proven unworkable have been discarded. The things that work have been refined, developed, and synthesized into what we call the Proven Path. Today’s version of the Proven Path is an evolutionary step over the prior ones; it has been refined for ERP but it is true to the history of proven success over a quarter century. The Proven Path isn’t theory; it’s not blue sky or something dreamed up over a long weekend in Colorado Springs, where the air’s really thin. Rather, it’s a product of the school of hard knocks—built out of sweat, scar tissue, trial and error, learning, testing, refining. Surprising? Not really. The Proven Path evolved the same way ERP did—in a pragmatic, practical, and straightforward manner. It wasn’t created in an ivory tower or a laboratory, but on the floors of our factories, in our purchasing departments, in our sales and mar- keting departments, and on our shipping docks.
The Implementation Challenge 31
3Faithfullyand with dedicationare important words. They mean that this is not a pick-and-choose kind of process. They mean skip no steps.
This evolution has continued, right into the twenty-first century, triggered by three factors:
1. New opportunities for improvement. 2. Common goals and processes.
3. Time pressures to make improvements quickly.
Keep in mind, when the original Proven Path was developed by Dar- ryl Landvater in the mid-1970s, what was then called closed-loop MRP was close to being “the only game in town” for major im- provements in manufacturing companies. Quality? In the United States that was viewed as the job of the quality control department, and people like W. Edwards Deming and others had to preach the gospel of Total Quality Control in other parts of the world. Just-in- Time, and its successor, Lean Manufacturing hadn’t yet hit the North American continent in any meaningful way. Other important tools like Design for Manufacturability, Activity-Based Costing, and Gainsharing, hadn’t been invented yet or existed in small and rela- tively unpublicized pockets of excellence.
Today, it’s a very different world. It is no longer good enough to implement any one major initiative and then stop. Tools like Enter- prise Resource Planning, Lean Manufacturing, Total Quality Man- agement, and others are all essential. Each one alone is insufficient. Companies must do them all, and do them very well, to be competi- tive in the global marketplace of the 2000s. Winning companies will find themselves constantly in implementation mode, first one initia- tive, then another, then another. Change, improvement, implemen- tation—these have become a way of life.
As competitive pressures have increased, so has the urgency to make rapid improvement. Time frames are being compressed, nec- essary not only for the introduction of new products, but also for new